BoJ defiant on reflation policy

THE Bank of Japan has continued its massive share buying spree to prop up Japan's troubled banks but has ignored Government demands to take action to reflate the economy. BoJ Governor Masaru Hayami defied Prime Minister Junichiro Koizumi and left monetary policy unchanged today after a two-day policy meeting.

Instead he stepped up the BoJ's support for banking stocks, announcing that total purchases have risen to 280.8bn yen (£1.6bn) from 245bn yen 10 days ago. The move will anger Koizumi, who is soon to announce his choice of replacement for Hayami, whose five-year term ends in March.

The PM has made it clear he wants someone dedicated to fighting deflation and who will work with the Government. 'In order to realise growth in prices, it is vital for us to work together with the Bank of Japan,' Koizumi said. The banks, which are facing mounting losses, are the biggest victims of the deflation gripping Japan. This was underlined yesterday when the giant Mizuho Holdings warned it was on course for the biggest loss in Japanese corporate history.

Ratings agency Fitch also warned today that it may have to adjust its ratings on the banks in the next few weeks if their financial problems deepen.

The BoJ launched its share-buying scheme in November, as part of the Government's strategy to help banks rebuild their capital base, which was in danger of falling below internationally required levels. A two trillion yen target has been set for the operation, which is expected to continue for two years.